With the mortgage rates currently dropping as they have done over recent months due to the credit crunch, there’s likely to be a lower mortgage rate available than the one you are currently on. Should you be rushing out to a local mortgage broker to see if there are cheaper mortgage rates on the market for you?
Maybe, maybe not. It’s not always that simple in the world of financesand that’s the reason that whether you are looking at mortgage tables online or by visiting your local banks, you should always seek free, independent advice from a mortgage advisor. Don’t just swap mortgage rates because your new lender tells you they have a better mortgagedeal for you. Don’t just find a lower rate on the internet comparison tables and apply for it, thinking all will be well.
Why might it not be a good idea in all cases? Well, one of the first fact finding questions an independent mortgage broker will ask you at a first interview may be about any tie-ins you have with your current mortgage. If you move your mortgage now, will you have to pay any financial penalties to your current lender? These could be quite significant costs. If the penalty is to pay the equivalent of a few months’ interest just to get you out of an existing deal, then it might require you to be able to reduce your monthly mortgage repayments a lot in order to recover the extra expense, and this might not be possible.
Assuming that your current mortgage has ended its comfy introductory period and you are now on the bank’s standard variable rate, without any tie-ins, then there are still plenty of warning flags that might make it harder or financially uncomfortable for you to remortgage. These, along with any other relevant warnings that need to be looked at, should be discussed and worked through with along with other help and advice from your mortgage broker.
For example, you will need to consider do you still count as the same level of credit risk as when you took out the mortgage to begin with, or have you missed any repayments? Has the value of your property fallen since you took out your current mortgage, maybe meaning that your borrowing will be an even larger proportion of the house price? If your mortgage value is now more than 75% of the value of your house, a future mortgage could be very expensive. These might mean that lenders won’t be as happy to consider your application and offer you a mortgage, or at least not as good an offer. You could be shoved onto a more expensive product because of a change of circumstances.
And even these aside, there are arrangement fees, completion fees on your existing mortgage, other legal fees for setting up a mortgage and maybe survey fees on your own property. All of these charges have to be paid for. Pay for them up front as you arrange a new mortgage, and then you have to work out what the long term impact is effectively and decide if the saving in the offer period outweighs the costs involved . Add them to your mortgage and you end up paying more each month for the entire life of the mortgage.
Either way, reducing your monthly repayments isn’t just about finding better mortgage rates. You have to take into account all costs and impacts and total up over the next few years if moving mortgage will actually save you any cash, or whether it will cost you money. Ask an independent mortgage broker to give you a written model, comparing your current position mortgageto your proposed position.
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